Lime Wire scrambles to avoid annihilation

The company that operates the LimeWire file-sharing software continues to maneuver in an effort to save the company from a potential court-ordered closure but time is slipping away.

Lime Wire founder Mark Gorton could be liable for millions in damages following a court ruling earlier this month.
Screen shot by Greg Sandoval/CNET

Two weeks ago, U.S. District Judge Kimba Wood handed a major legal victory to the Recording Industry Association of America (RIAA), which filed a copyright lawsuit against the Lime Wire company in 2006. She ruled that Lime Group, parent of LimeWire software maker Lime Wire, and founder Mark Gorton are liable for copyright infringement. Lime Group and Gorton could be required to pay hundreds of millions in damages and legal experts say the music industry now has the means to force the service to cease operations.

On Wednesday, attorneys for Lime Group filed a motion with the court asking Wood to reconsider her decision, according to court documents obtained by The Hollywood Reporter. Lime Group lawyers wrote that the judge made numerous errors in her decision, such as finding that Gorton received a direct financial benefit from the copyright infringement. She also "failed to consider whether Lime Group had the ability to supervise the particular Lime Wire actions," the lawyers claimed in their filing.

For years, the LimeWire software has been the preferred way to share unauthorized music files on the Web. Users account for 58 percent of the people who said they downloaded music from a peer-to-peer service last year, according to survey results from research firm NPD Group.

Lime Group's request for the change to reverse her decision is standard operating procedure for companies in this kind of pickle. It's the legal equivalent of football's "Hail Mary" pass. But instead of the judge changing her mind, what is more likely to happen is the RIAA will ask Wood for an injunction during a hearing scheduled for June 7, and Lime Wire will be ordered to shut down. Legal experts have said that Lime Group's chances of avoiding this fate are at best slim.

In addition to Lime Group's 12th-hour court filing, the New York-based company has also reached out to some of the four major labels in an effort to negotiate a compromise, according to multiple music industry sources. Gorton is offering to license music from the big record companies and turn LimeWire into a legal service, the sources said. But this too is a long shot.

Lime Wire's decision to set the site's filter to off "was a conscious design choice, the direct result of which was a failure to mitigate infringement."

--U.S. District Judge Kimba Wood

Lime Group has generated a lot of bad blood with music executives after years of refusing to make even a minimum effort to compensate artists or protect against piracy, sources in the industry said. Lime Wire pocketed $20 million in revenue during some years while giving back little or nothing to music creators.

A Lime Group representative said in a statement Thursday evening: "We will continue to maintain an open dialogue with the rights holders and push forward with our objective of working in concert with the music industry."

Recording companies have entered into "dialogue" with Gorton and his staff in the past but these efforts have produced nothing, music industry sources said. On multiple occasions, Gorton and Lime Group have signaled they were ready to filter for pirated music files and send warning notices to people sharing unauthorized files on behalf of the music industry, a process known as "notice and take down." Few if any of these changes ever were made, industry insiders said. "They've had years to come to the table," said one music industry executive. "Nobody believes them anymore."

Even some of the staunchest defenders of technology companies suggest that by profiting off of file sharing without implementing any antipiracy systems, Gorton and Lime Group were inviting disaster.

Jonathan Zittrain, a professor at Harvard Law School and co-founder of the Berkman Center for Internet and Society, said Wood's decision served as a warning to services that profit from illegal file sharing.

"If you're coming real close to flying the Jolly Roger as a business, you can expect to be in legal trouble," Zittrain told The New York Times.

In the two weeks since Wood made her ruling against the Lime Group, Gorton and Lime Wire managers have argued their case in the media. In multiple interviews, company leaders have sounded astonished to find themselves in this situation and appear to have just recently discovered filtering and take-down letters.

"One way to address what the court is talking about, short of shutting down the network, which I think is overreaching and drastic, is to filter the network of these files in question," Zeeshan Zaidi, Lime Wire's chief operating officer, told Wired.com. "This is a way for us to move forward in the case."

Yet, there's plenty of evidence to show that for years Lime Group chose to ignore such copyright protections. First, filtering is the term used to describe when companies employ software to automatically recognize and remove unauthorized material from a site. Video-sharing site YouTube, which has a copyright lawsuit filed by Viacom hanging over its head, launched a filtering system years ago. It's worth noting that weeding out pirated content doesn't appear to have hurt YouTube much. Google CEO Eric Schmidt has said the ad-supported video site could turn a profit this year.

In the case of Lime Group, the company has long had the ability to filter but chose not to implement it in any meaningful way, Wood said in her decision for summary judgment. She wrote:

"In May 2006, Lime Wire implemented an optional, hash-based content filter. A hash-based filter can identify a digital file that contains copyrighted content, and block a user from downloading the file. The 'default' setting of LimeWire's hash-based filter was 'off.'

"[Lime Wire managers] could have made the hash-based content filter mandatory for all LimeWire users, or made 'on' the default setting, so that a user's file-sharing activities would be subject to the filtering process unless he affirmatively deactivated the filter. According to [the company's] expert Steven Gribble, (the company) chose to set the filter to 'off' because it wished to provide users with 'enough flexibility to enable, disable, or configure filtering.' [The managers'] decision was a conscious 'design choice,' the direct result of which was a failure to mitigate infringement."

So, if Gorton and his staff sound wide-eyed and naive about filtering, some record company executives say they are only undermining their credibility as well as their attempts to convince the music industry that they would make good partners in a legitimate enterprise.